Household debt servicing ratio at 11-year low

by Julia Corderoy31 Mar 2015
Figures released by the Reserve Bank of Australia reveal that the ratio of household interest payments to disposable income dropped to an 11-year low in December 2014.

According to the data, Australian consumers have actually taken on more debt, but the value of the assets purchased has also increased at a faster rate – meaning wealth is at record highs. 

The Reserve Bank calculates household wealth at a record $7,297 billion at the end of December, up 2.6% in the quarter. The value of all homes was estimated at $9,448 million, up 1.6% over 2014.

However, with interest rates at record lows, the ability to service the higher debt load has continued to improve – holding at the best levels in 11 years. Household interest payments were 8.9% of disposable income, steady over the quarter and the lowest since December 2003.

The figures also reveal that the ratio of housing debt to housing assets fell to a three and a half year low of 28%. Housing assets stood at 813.8% of income while household debt was 153.8% of income.

According to Craig James, chief economist at CommSec, this is good news ahead of the RBA’s monthly monetary policy board meeting – to be held next Tuesday, 7 April. 

“Eventually people will start embracing record low interest rates by lifting borrowing, spending and investing,” he said.

“The Reserve Bank may still cut interest rates, but there is no pressing need.”